Domestic debt: FG to borrow N2.85trn by mid 2017

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By Emeka Anaeto,

LAGOS—AMID brightening prospects of improved revenue accruals, the Federal Government is adjusting its borrowing plans as Central Bank of Nigeria, CBN, hopes to roll-over about N1.09 trillion  worth of Nigerian Treasury Bills, NTB, borrowings in the second quarter of 2017.

The apex bank’s borrowing plan in its calendar released, yesterday, indicated that a fresh N43.3 billion NTB fund raise will be part of the new measures.

Also, the Debt Management Office, DMO, is set to raise additional N130 billion borrowings on behalf of the federal government in the form of bonds, next week, to bring its funds raise so far this year to N290 billion.

Vanguard further learned that the government plans to open a fresh local borrowing window next week in form of a Federal Savings Bond which is expected to raise over a trillion Naira this year. According to the apex bank’s debt auction calendar, it will sell N243 billion in 91-day bills, N198 billion in 182-day and N689 billion in 364-day debt. All the sales would take place between March 16 and June 1, 2017.

This will bring total domestic borrowings of government through same measure to about N2.21 trillion by end of first half of the year, just a match up to N2.32 trillion projected deficit for the full year in the 2017 Appropriation Bill. When added to about N290 billion raised for the FGN by the DMO, the total borrowings from domestic market would have amounted to N2.5 trillion, overshooting the total 2017 projected deficit by 8.7 per cent in the first half, H1’17.

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Still growing also when the recent overseas fund raising by way of Eurobond issue which fetched the government USD1.0 billion, about N305 billion is added to the basket of fiscal financing actions for 2017, bringing the stack up to N2.85 trillion, about 22.8 per cent above the 2017 budgeted borrowings.

In the 2017 Appropriation Bill currently being scrutinized by the National Assembly, the government planned to spend N7.298 trillion, with a funding gap of N2.3 trillion (about 2.18 per cent of GDP), which the National Planning Minister, Udo Udoma, said would be bridged 50 per cent through domestic borrowings.

However, with the latest development, the bridging is now overshot by over 120 per cent and finance industry analysts say the borrowing would continue in the second half. But beyond deficit financing, the CBN’s action is also part of its measures in managing banking system liquidity squeeze and curb rising inflation in the economy.

DMO to sell N130 bonds

Meanwhile the DMO announced, yesterday, that it would be raising N130 billion from its third debt sale this year on March 15, 2017. The sales would come in triple issue of N45 billion in bonds due in 2021, N50 billion maturing in 2027, and N35 billion due 2036, using the Dutch auction system which begins with a high asking price that is lowered until the bond is sold.

Settlement is expected on the day following the issue. The bonds are re-openings of previous issues, except the 2027 which is a new issue.

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Commenting on the new borrowing plans, Head of Research at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, told Vanguard that the apex bank might be moving debt towards a lower cost Savings Bond and at the same time shifting away from short term to a longer tenured borrowings to give it a more breathing space on repayments. The new borrowing plans are coming at a time government’s revenue appeared to be receiving a boost from the oil sector which has received two key boosts this year in form of stable oil price at above USD55 per barrel and sharp increases in oil production at about 2.1 million barrels per day.

Many financial analysts had argued that a bullish borrowing by the government would crowd out private sector in credit market as banks divert their funds to government lending.

This also increases cost of funds across all market segments as government borrowings are done at high rates ranging between 18.5 and 22 per cent.

The increased cost of funds, according to them, also pressures inflation which is now over 18.7 per cent.

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